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New LLC Law in Minnesota

New LLC Law in Minnesota

 

Since August 1, 2015, all new limited liability companies (“LLC”) in Minnesota have been formed under Minn. Stat. Chapter 322C.  Prior to August 1, 2015, new Minnesota (MN) LLCs were formed under Chapter 322B.  Effective January 1, 2018, all LLCs (including those formed prior to August 1, 2015) will be governed by Chapter 322C (“New Law”).

What does this mean for your LLC? The result is that whether you intended it or not, your MN LLC is now governed by the New Law. Previously, Ch. 322B (“Old Law”) followed more traditional corporate law concepts. The New Law follows a more partnership-style approach, which is the approach common in most states and provides greater flexibility to members (i.e. owners of LLCs) to design custom business arrangements in the ‘operating agreement’ (defined in the New Law as the single agreement among the members that governs virtually all aspects of the relationship among members). Previously under the Old Law, this document may have been referred to as the By-Laws or Member Control Agreement.

The Partnerships and Limited Liability Companies Committee of the Minnesota State Bar Association Business Law Section prepared a brief summary of the changes at the request of the Minnesota Secretary of State.  The following is a list of the primary issues impacted by the law change:

  1. Governing Agreement (“Operating Agreement”)
  2. Management Structure
  3. Default Voting Rights in Member-Managed LLCs
  4. Default Distribution and Profit Rights
  5. Dissenters’ Rights
  6. Statutory Apparent Authority
  7. Fiduciary Duties
  8. Indemnification Obligations.

The Minnesota Secretary of State recommends that you undertake a full review of your LLC’s existing governing documents, which may include By-Laws, Member Control or Limited Liability Company Agreement, Buy-Sell Agreement, and any other agreement that exists among the members of your LLC.

Keep in mind that unless members of an LLC adopt a new operating agreement in writing, under the New Law, the LLC’s existing documents will become the operating agreement, even if terms may have a different meaning under the new law.  This is also an opportunity to clarify and update provisions that may have become outdated or which are no longer useful given the current nature of your business.

We echo these sentiments and encourage you to contact us at Fremstad Law or another attorney to conduct a review of your existing documents and to answer any questions you may have regarding the law change or any other business issue your experiencing.